Worst M&A performance for a decade is the bubble about to burst? M&A Quarterly Deal Performance Monitor: Q4 2017

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1 Worst M&A performance for a decade is the bubble about to burst? M&A Quarterly Deal Performance Monitor: Q4 2017

2 Worst M&A performance for a decade is the bubble about to burst? Final quarter of 2017 records poorest performance of M&A deals in the last decade, highlighting the increasing difficulty of delivering successful deals in an overpriced market. LONDON, Monday 18 December, 2017 The global M&A market has for the first time in ten years reversed a long-term trend of outperforming the Index 1 by failing to add value through deals made during 2017, according to Willis Towers Watson s latest Quarterly Deal Performance Monitor (QDPM). On an YTD basis, acquirers have underperformed the index by 0.9pp (percentage points) in the last 12 months. The M&A research, run in partnership with Cass Business School, tracks the number of completed deals over $100m and the performance of share price of the acquiring company against market indices. The findings also revealed that the final quarter of 2017 has proved especially challenging to deliver value, with dealmakers significantly underperforming the market by 5.6pp below the index. This is the lowest quarterly figure recorded since the QDPM research began in Figure 1. M&A Quarterly Analysis of market performance, global sample The line below (3.6pp) shows the median-adjusted performance of all acquirers throughout the period. The blue line below (5.0pp) shows the median-adjusted 17.1 performance of all acquirers over a three year rolling period The yellow line below (-0.9pp) shows the median-adjusted performance of all acquirers over one-year rolling period. Percentage Points NB: The share price returns have been adjusted to Index returns over the corresponding period. The MSCI World Index is used as default, unless stated otherwise. 1 MSCI World Index is used as default, unless stated otherwise. 2 willistowerswatson.com

3 Figure 2. M&A Regional Analysis 2016 and 2017 Acquirer Returns Adjusted to the MSCI Regional Index Jana Mercereau, Head of Corporate Mergers and Acquisitions for Great Britain, said: Global conditions for M&A in 2017 have been tough and delivering a successful deal and realising value is increasingly difficult. Inflated price-to-earnings ratios have made deals more expensive, with companies often paying large premiums in a bidding war or as a defensive tactic, and making it increasingly difficult to realise a strong return North America Europe Asia-Pacific NB: The share price returns have been adjusted to Index returns over the corresponding period. The MSCI World Index is used as default, unless stated otherwise. However, of the 198 deals completed so far in this quarter, 88 still outperformed the Index. So, we are still seeing value in M&A activity for many but acquirers need to choose their targets carefully and integrate their acquisitions well. In today s challenging market, improvements in deal selection, deal governance and integration focus will significantly boost the market s success rate and help acquirers achieve critical deal objectives, including higher returns for shareholders. Jana Mercereau, Head of Corporate Mergers and Acquisitions for Great Britain 3 M&A Quarterly Deal Performance Monitor: Q4 2017

4 Although dealmakers have underperformed in 2017, the QDPM analysis shows the three-year rolling average performance for global acquirers remains positive at 5.0pp, with longer-term performance since 2008 currently at 3.6pp, which indicates acquirers over the long term are continuing to track well above market indices, maintaining a strong return on completed deals. These longer term figures support the proposition that, done well, deals are a robust route to corporate growth and do add value to shareholders. Regionally, European acquirers with 32 deals continue to be the stand out dealmakers during an otherwise challenging fourth quarter, returning a market outperformance of 8.7pp above the index compared to 3.7pp the previous quarter. While acquirers in North America showed an underperformance of 4.3pp with 101 deals in Q4 2017, deal makers from Asia-Pacific were significantly lower with a dramatic underperformance of 29.2pp, which is an all-time low for the region. In the three-year rolling analysis, Asia-Pacific acquirers still remain in the top spot due to their high performance most of the last three years, with 17.2pp above their regional index followed by European and North American acquirers which have outperformed their regional indexes over the same period by 6.2pp and 1.7pp respectively. Following a slow start in the number of deals closed globally in the first half of the year, deals closed in Q4 are currently at (848 YTD), compared to 273 (942 in fullyear 2016) for the same period last year, with a significant drop in volume in Asia-Pacific compared to prior years. The analysis reveals traditionally challenging deal types, such as Large, Cross-sector, and Slow deals to have particularly struggled to add value in Q Compared to the same period in 2016, the Technology sector also stands out as having significantly underperformed other sectors in the final quarter of 2017 by 23.9pp. Technology isn t just for tech companies anymore, with half of all such M&A deals in the last three months being made by non-tech sectors, commented Jana Mercereau. No company can afford to ignore the impact of technology and for an increasing number of organisations, the answer is to buy rather than build in order to acquire needed technologies, capabilities, and products and to close innovation gaps. The rapid pace of tech acquisitions has pushed up prices, but this has not deterred buyers who clearly see some targets as must have assets, even if the potential for value creation in the short to medium term is lower. Successful acquirers of tech capabilities will need a focused strategy, a tailor-made M&A process for tech targets and talent, and to build the right corporate organisation to find, execute and integrate innovative tech firms. 2 The QDPM research for Q includes deals completed between 1st October 2017 and 11th December We anticipate the current number of deals of 198 to increase by quarter end. 4 willistowerswatson.com

5 Willis Towers Watson QDPM Methodology All analysis is conducted from the perspective of the acquirer. Share-price performance within the quarterly study is measured as a percentage change in share price from six months prior to the announcement date to the end of the quarter. All deals where the acquirer owned less than 50% of the shares of the target after the acquisition were removed, hence no minority purchases have been considered. All deals where the acquirer held more than 50% of target shares prior to the acquisition have been removed, hence no remaining purchases have been considered. Only completed M&A deals with a value of at least $100 million which meet the study criteria are included in this research. Deal data sourced from Thomson Reuters. About Willis Towers Watson M&A Willis Towers Watson s M&A practice combines our expertise in risk and human capital to offer a full range of M&A services and solutions covering all stages of the M&A process. We have particular expertise in the areas of planning, due diligence, risk transfer and post transaction integration, areas that define the success of any transaction. Media contacts Andrew Collis andrew@acolliscommunications.com Jamie Kilduff Jamie.kilduff@willistowerswatson.com 5 M&A Quarterly Deal Performance Monitor: Q4 2017

6 Appendix A: Data Descriptives: Q3 2016, Q and Q Q Median Deal Value ($m) Q Median Deal Value ($m) Q Median Deal Value ($m) All Asia-Pacific Europe North America Rest of the world , Consumer Products & Services Consumer Staples Energy & Power Financials Healthcare High Technology Industrials Materials Media & Entertainment Retail Telecommunications Domestic Cross-border Asia-Pacific Europe North America Rest of the world , Intra-regional Cross-regional Asia-Pacific Europe North America Rest of the world Intra-sector Cross-sector Asia-Pacific Europe North America Rest of the world Quick deals Slow deals Large deals (over or equal to $1bn) 61 2, , ,827 Mega deals (over or equal to $10bn) willistowerswatson.com

7 Appendix B: Top 25 Deals by Value of Transaction Q Date Announced Date Effective Acquirer Name Target Name Value of Transaction ($ mil) 31/10/ /11/2017 CenturyLink Inc Level 3 Commun Inc. 25,136 28/08/ /10/2017 Gilead Sciences Inc Kite Pharma Inc. 11,856 18/07/ /11/2017 Crown Castle International Lightower Fiber Networks LLC 7,100 19/06/ /11/2017 EQT Corp Rice Energy 6,576 26/04/ /10/2017 Lotte Confectionery Co Ltd. Lotte Shopping Co-Invest bus 6,466 02/11/ /11/2017 Broadcom Ltd. Brocade Commun Sys Inc 5,536 01/06/ /12/2017 Deere & Co WIRTGEN GROUP Holding 5,174 01/02/ /10/2017 Abbott Laboratories Alere Inc 5,092 01/05/ /10/2017 Pembina Pipeline Corp Veresen Inc 4,285 17/04/ /10/2017 Tesoro Logistics LP Tesoro Logistics GP LLC 3,768 10/10/ /10/2017 Coca-Cola Co Coca-Cola Beverages Africa 3,150 13/03/ /10/2017 John Wood Group PLC Amec Foster Wheeler PLC 2,706 25/09/ /11/2017 Unilever PLC Carver Korea Co Ltd 2,704 10/05/ /11/2017 Fidelity National Finl Inc. Fidelity National Finl Inc 2,589 24/05/ /11/2017 CF Corp Fidelity & Guaranty Life 2,240 07/03/ /10/2017 Sterling Bancorp Astoria Financial Corp 2,219 04/05/ /11/2017 First Horizon National Corp Capital Bank Financial Corp 2,184 24/02/ /10/2017 MacDonald Dettwiler & Assoc DigitalGlobe Inc 2,134 16/03/ /10/2017 3M Co Scott Technologies Inc 2,000 25/09/ /11/2017 Genuine Parts Co Alliance Automotive Group SAS 2,000 09/05/ /10/2017 Apollo Global Management West Corp 1,988 26/04/ /10/2017 Lotte Confectionery Co Ltd. Lotte Chilsung Beverage-Invst 1,827 20/07/ /11/2017 Ingenico Group SA Bambora Group AB 1,728 02/06/ /12/2017 Eversource Energy Macquarie Utilities Inc 1,675 31/03/ /11/2017 FMC Corp DuPont Crop Protection 1,625 7 M&A Quarterly Deal Performance Monitor: Q4 2017

8 About Willis Towers Watson Willis Towers Watson (NASDAQ: WLTW) is a leading global advisory, broking and solutions company that helps clients around the world turn risk into a path for growth. With roots dating to 1828, Willis Towers Watson has 40,000 employees serving more than 140 countries. We design and deliver solutions that manage risk, optimise benefits, cultivate talent, and expand the power of capital to protect and strengthen institutions and individuals. Our unique perspective allows us to see the critical intersections between talent, assets and ideas the dynamic formula that drives business performance. Together, we unlock potential. Learn more at willistowerswatson.com. Willis Towers Watson 71 High Holborn London WC1V 6TP Towers Watson Limited (trading as Willis Towers Watson) is authorised and regulated by the Financial Conduct Authority in the UK. The information in this publication is of general interest and guidance. Action should not be taken on the basis of any article without seeking specific advice. To unsubscribe, eu.unsubscribe@willistowerswatson.com with the publication name as the subject and include your name, title and company address. willistowerswatson.com/social-media Copyright 2017 Willis Towers Watson. All rights reserved. WTW13660/12/2017 willistowerswatson.com